Wayne A. Leighton & Edward J. López

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

About the Book

Does major political reform require a crisis? When do new ideas emerge in politics? How can one person make a difference?

In short: how and when does political change happen? Madmen, Intellectuals, and Academic Scribblers tackles these big questions, arguing that ideas and entrepreneurship are the key ingredients in any episode of political change. Authors Wayne A. Leighton and Edward J. López begin with the first lesson in economics — incentives matter — and artfully explain how the lesson applies throughout political life. Incentives explain why democracies often generate policies that impose net costs on society, and why these inefficient policies persist for years.

Yet beneficial reform does sometimes occur. So Madmen goes beyond incentives to offer a framework in which political change channels its way from ideas in society, through society’s shared institutions (i.e., its rules of the game) , which in turn shape incentives. This type of change is seldom easy, because new ideas for shaping the rules of the game must overcome two forces in society: widely shared beliefs and powerfully vested interests. Yet at certain political moments – perhaps during a crisis, but not always – shared beliefs and vested interests begin to weaken, and the opportunity for reform emerges. Within this framework, Madmen shows why certain inefficient policies eventually get repealed (e.g., airline rate and route regulation), while others endure (e.g., sugar subsidies and tariffs).

Drawing on the history of Western political ideas, both in theory and in practice, Madmen matches up three key ingredients – ideas, rules, and incentives – with the characters who make political waves – madmen in authority (such as Franklin Delano Roosevelt and Margaret Thatcher), intellectuals (like George Will or Jon Stewart), and academic scribblers (in the vein of Friedrich Hayek and John Maynard Keynes).

Political change happens when these characters – called political entrepreneurs – notice loose spots in the structure of ideas, rules, and incentives, and then find ways to change a society’s rules of the game. These entrepreneurs in political change may be philosophers, opinion makers, political leaders, or other types of influencers. What they have in common is an interest in better ideas—ones that improve the human condition—and a vision to change incentives and outcomes.

Madmen helps leaders in business and politics, and opinion-makers everywhere, better understand where the next opportunities are emerging. Students and professors will eat up its history of ideas, from the Ancients Greeks to Adam Smith, and from the Progressives to modern political economy. Using the framework laid out by the authors, readers of all stripes will see how they can be entrepreneurs in promoting effective political change.

Framework

For new ideas to result in political change, they must overcome the forces of the status quo, in particular widely shared beliefs and powerful vested interests.

The process of political change involves many forces coming together, even though it may seem like a coincidence of time and place.

The interactive diagram on the right is adapted from Chapter 5 of Madmen. It represents a general framework that can be used to understand how the most important factors of political change interact.

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Top Down Idea Formation

How do ideas have consequences? A key element of our framework is the top-down influences of academics and intellectuals, who are constantly debating. They compete to have their ideas be the most influential in society. When and where do their ideas take hold?

Keynes's Academic Scribblers

Hayek's Intellectuals

Public Opinion

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Bottom Up Idea Formation

How do individual beliefs about politics and markets take shape? Another key element of our framework is the bottom-up mix of forces – e.g. nature and nurture – that are particular to each individual in a society. These forces create the environment in which collective beliefs about the proper role of government take shape.

Biology, Culture (Nature, Nurture)

Individual Beliefs

Memes, Transmitters

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Collective Beliefs On Markets & Government

These bottom-up and top-down ideas interact constantly. And sometimes, a new idea puts pressure on existing institutional arrangements – i.e., on the formal and informal rules of the game as it’s currently played in a society. The environment is ripe for political change, for a different idea to overcome the status quo.

Collective Beliefs About Markets & Proper Role of Government

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The Framework of Political Change

When institutions change, people in politics and markets face new incentives, and their actions change accordingly. As J. S. Mill said in 1845, “when the right idea and the right circumstances meet, the effect is seldom slow in manifesting itself.”

Ideas

Institutions

Incentives

Outcomes

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Feedback Loop

The process is not linear – there is no starting point. As outcomes change, they may influence new ideas that occur to the academic scribbler (reinforcing a top-down flow) as well as the subtle change in ideas held by the everyday citizen (reinforcing a bottom-up flow). And the seeds of future political change are planted.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.